Santander

RECESSION? What recession? Santander might be the biggest lender in Spain, which has suffered one of the steepest housing downturns in the world – but it is showing no signs of slowing its frenetic acquisition spree. Already in pole position to snap up the RBS branches that are on the block, it has now bought Bank of America out of its Mexican business for $2.5bn.

It’s a shrewd move, allowing the Spanish bank to expand in fast-growing Mexico with the minimum of fuss. The central American nation is a hot property at the moment; it is the most-targeted emerging market economy so far this year, accounting for 65 per cent of deal activity, with Brazil and Peru a distant second and third on 26 per cent and nine per cent respectively. And this is by far the biggest of the lot so far this year – and the third largest in the last twelve months.

Santander’s management expects a negative impact of around 31 basis points on its core capital ratio, which it can easily withstand. Its Tier 1 ratio is 8.8 per cent and its operations are well-diversified (Spain accounts for just 25 per cent of operating profits).

Outside of Asia, Mexico is the place to be; significant growth and pension and investment fund expansion is just around the corner, while profit margins will only improve now the country has exited recession.

There are few banks that have emerged from the financial crisis unscathed, and even fewer that have enhanced their reputation. Everyone likes to back a winner, making these shares a strong buy.
david.crow@cityam.com